| May 25, 1990 | |
| Taxpayer Assistance Section | Financial Industries |
| Division | |
| Room 800-400 Cumberland | A. Seidel |
| 957-8960 | |
| Attention: Corinne Solvason | |
| File No. 7-900320 |
SUBJECT: Prescribed Annuity Contract ("PAC") of 19(1) (the "taxpayer")
This is in reply to your memorandum dated April 5, 1990 with respect to the above subject.
24(1)
Notwithstanding the fact that subparagraph 304(1)(c)(iv) of the Regulations requires that the holders rights under the PAC cannot be disposed of otherwise then on the holder's death, there is no provision in the Income Tax Act or the Regulations which specifically prevents investors from renegotiating the terms of the PAC such that it no longer qualifies as a PAC. If circumstances indicate that the parties to the PAC arrangement contemplated a renegotiation of the terms of the PAC at the time it was issued it is quite likely that the annuity contract never qualified as a PAC.
In the situation where a PAC is commuted to alleviate the financial hardship of the taxpayer, it is our view that this would not be a case of tax avoidance or misuse of the PAC provisions of the Act. Accordingly, in the present case 24(1)
We hope our comments are of assistance to you. If you have any further questions with respect to the above, do not hesitate to contact the writer at the above number.
ChiefFinancial Institutions SectionFinancial Industries DivisionRulings Directorate